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Econ370-FinalExamFA20-PartII-11.docx

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1. The graph below depicts a large country which has opened up trade in cars with other countries. The free trade price in the world market is $8000. The large country imposes a tariff of $1000 per car.

Price

Dd Sd

9000 Sw’+t

8000 a b c d Sw

7800 Sw’

30 50 90 110 Automobile

What is the autarky equilibrium price of cars in this country? ---------------------------

If the world market price is $8000, what is:

Consumer demand at free trade price? ------------

Domestic production at free trade price? --------------

How much is import at free trade price? -----------------

As referred above, to satisfy the discontent domestic producers, government imposes a tariff of $1,000 on each imported car.

Price in the world market falls to $7800. As a result, Domestic consumers now face a supply curve Sw’+t at price $8800.

What is domestic demand after tariff? ------------------

What is domestic production after tariff? ______________

How much is import after tariff? _______________

As a result of tariff:

Consumer surplus in the large country decreases by how much? (detailed computation must be shown) --------------

Producer surplus in the country increases by how much? (Detailed computation must be shown) --------------

What is government’s revenue after tariff? (areas are to be indicated and computations must be shown)

How much of this revenue is terms of trade effect? ------------

How much of this revenue government collects from the domestic consumers?

How much is deadweight loss in this country? -----------------------

Does the country achieve net national gain or loss? By how much?

--------------------- -----------------------------------------

2. Use the 2018 BOP Account data for the US given below and answer the questions that follows. Show every step of your Computations

Table 1. U.S. International Transactions–2018
[Millions of dollars]
Line		2018	Line


	Current account
1	Exports of goods and services and income receipts (credits)	3,735,684	1
2	Exports of goods and services	2,501,310	2
3	Goods	1,674,330	3
4	General merchandise	1,652,113	4
5	Foods, feeds, and beverages	133,176	5
6	Industrial supplies and materials	534,649	6
7	Capital goods except automotive	563,156	7
8	Automotive vehicles, parts, and engines	158,839	8
9	Consumer goods except food and automotive	205,471	9
10	Other general merchandise	56,821	10
11	Net exports of goods under merchanting	270	11
12	Nonmonetary gold	21,947	12
13	Services	826,980	13
14	Maintenance and repair services n.i.e.	30,968	14
15	Transport	92,852	15
16	Travel (for all purposes including education) ¹	214,680	16
17	Insurance services	17,466	17
18	Financial services	112,015	18
19	Charges for the use of intellectual property n.i.e.	128,748	19
20	Telecommunications, computer, and information services	43,196	20
21	Other business services	165,821	21
22	Government goods and services n.i.e.	21,235	22
23	Primary income receipts	1,084,183	23
24	Investment income	1,077,515	24
25	Direct investment income	574,464	25
26	Portfolio investment income	411,171	26
27	Other investment income	91,247	27
28	Reserve asset income	632	28
29	Compensation of employees	6,668	29
30	Secondary income (current transfer) receipts ²	150,191	30
31	Imports of goods and services and income payments (debits)	4,226,662	31
32	Imports of goods and services	3,128,989	32
33	Goods	2,561,667	33
34	General merchandise	2,551,105	34
35	Foods, feeds, and beverages	148,364	35
36	Industrial supplies and materials	583,344	36
37	Capital goods except automotive	695,939	37
38	Automotive vehicles, parts, and engines	373,123	38
39	Consumer goods except food and automotive	649,096	39
40	Other general merchandise	101,237	40
41	Nonmonetary gold	10,562	41
42	Services	567,322	42
43	Maintenance and repair services n.i.e.	8,718	43
44	Transport	108,202	44
45	Travel (for all purposes including education) ¹	144,463	45
46	Insurance services	42,485	46
47	Financial services	31,298	47
48	Charges for the use of intellectual property n.i.e.	56,117	48
49	Telecommunications, computer, and information services	41,190	49
50	Other business services	111,874	50
51	Government goods and services n.i.e.	22,975	51
52	Primary income payments	830,198	52
53	Investment income	810,618	53
54	Direct investment income	244,197	54
55	Portfolio investment income	471,795	55
56	Other investment income	94,626	56
57	Compensation of employees	19,580	57
58	Secondary income (current transfer) payments ²	267,475	58
	Capital account
59	Capital transfer receipts and other credits	3,247	59
60	Capital transfer payments and other debits	12	60

Table 1. U.S. International Transactions–continues
[Millions of dollars]
Line		2018	Line


	Financial account
61	Net U.S. acquisition of financial assets excluding financial
	derivatives (net increase in assets / financial outflow (-))	310,827	61
62	Direct investment assets	-78,457	62
63	Equity	-151,614	63
64	Debt instruments	73,157	64
65	Portfolio investment assets	334,033	65
66	Equity and investment fund shares	194,087	66
67	Debt securities	139,945	67
68	Short term	16,341	68
69	Long term	123,604	69
70	Other investment assets	50,262	70
71	Currency and deposits	71,792	71
72	Loans	-22,423	72
73	Insurance technical reserves	n.a.	73
74	Trade credit and advances	893	74
75	Reserve assets	4,989	75
76	Monetary gold	0	76
77	Special drawing rights	156	77
78	Reserve position in the International Monetary Fund	4,824	78
79	Other reserve assets	10	79
80	Currency and deposits	(*)	80
81	Securities	10	81
82	Financial derivatives	0	82
83	Other claims	0	83
84	Net U.S. incurrence of liabilities excluding financial derivatives
	(net increase in liabilities / financial inflow (+))	735,583	84
85	Direct investment liabilities	258,392	85
86	Equity	357,164	86
87	Debt instruments	-98,773	87
88	Portfolio investment liabilities	315,676	88
89	Equity and investment fund shares	142,396	89
90	Debt securities	173,280	90
91	Short term	28,099	91
92	Long term	145,181	92
93	Other investment liabilities	161,515	93
94	Currency and deposits	32,320	94
95	Loans	114,066	95
96	Insurance technical reserves	n.a.	96
97	Trade credit and advances	15,129	97
98	Special drawing rights allocations	0	98
99	Financial derivatives other than reserves, net transactions ³	-20,721	99
	Statistical discrepancy
100	Statistical discrepancy	42,266	100

a) Compute US Current Account Balance for the year 2018. Explain whether the balance indicated a deficit or surplus for the year 2018.

b) Compute the Capital Account Balance for US in the year 2018. Did the account reflect a deficit or a surplus?

c) Compute US Financial Account Balance for the year 2018. Was the account in deficit or surplus?

d) Compute Statistical Discrepancy for the 2018 BOP Account. Does your answer match with the number shown on the table? (Show how you arrive at your answer for Statistical Discrepancy).